Navigating Geopolitical Risk and Emerging Sector Opportunities

1. Geopolitical Risk The escalating conflict with Iran is first and foremost a human tragedy, and the situation remains highly fluid. From an investment standpoint, however, the primary transmission channel to markets is energy. The focus now shifts to the Strait of Hormuz, a critical chokepoint through which roughly 20% of global oil supply flows.¹ Any meaningful disruption would have immediate implications for crude prices.

Importantly, oil had already been trending higher prior to this escalation, with Brent crude up approximately 19.75% year-to-date.² While part of that move reflects firmer-than-expected global growth, recent price action suggests geopolitical risk had begun to build beneath the surface. Near-term price spikes would not be surprising, but the broader economic impact will depend on duration.

2. Inflation, the Fed, and the Growth Outlook Inflation was already running firm before the latest geopolitical escalation in Iran. Recent data confirmed that price pressures remain sticky rather than reaccelerating. Headline CPI registered 2.4%³, PPI came in at 2.9%⁴, and PCE is tracking around 2.9%.⁵ None of these figures suggest inflation is running away, but they do reinforce that the path back to target remains gradual.

This dynamic keeps the Federal Reserve squarely in focus. With inflation still above target and the labor market stable, the Fed appears to have little urgency to ease policy. We have discussed whether the Fed even needs to act at this stage, given that financial conditions have already adjusted meaningfully. Additionally, the 10-year Treasury yield is at 3.92%, below 4% for the first time since November.

At the same time, incremental signs of economic moderation are emerging. The Atlanta Fed GDP tracker has moved to 3%⁶, though recent softer retail and auto sales data suggest a downside revision. First quarter growth could come in softer than trend, potentially in the 1.5% to 2% range. However, that would not necessarily signal deterioration so much as a pause before reacceleration. Reacceleration especially from the OBBB which should be a tailwind for both the consumer and corporations. A rebound toward 3% to 3.5% growth later in the year remains plausible.

3. Sector Dislocation Creating Opportunity Performance dispersion has created opportunity, particularly in financials. The group has lagged meaningfully, in part due to concerns around private credit exposure and broader private markets stress. However, the market narrative appears more corrective than the underlying fundamentals warrant. Large-cap banks have far less direct exposure to private credit risk than many assume. The big six banks remain well capitalized after years of regulatory constraint and incremental deregulation; the largest institutions appear positioned to take share as private market competitors face tighter conditions.

Housing is another area of weakness that may present an opportunity. The 30-year fixed mortgage rate moving below 6% for the first time since 2022 is a meaningful shift. While affordability remains a challenge, even modest rate relief could unlock pent-up demand in an undersupplied market, allowing builders and related housing equities to benefit.

4. Fixed Income U.S. Treasury yields ended the week lower across the curve, as geopolitical uncertainty deepened. Treasuries rallied to open the week as markets absorbed the White House’s proposal to replace existing tariffs with uniform 15% levy on all U.S. imports. That momentum continued through Friday with Treasuries continuing to attract demand as negotiations between the United States and Iran remained unresolved and investors sought protection against further volatility. By Friday’s close, the 2-, 10-, and 30-year yields were lower by 9, 8, and 10 basis points, respectively⁷.

Credit markets softened again last week, with widening pressure evident across both the investment grade and high yield sectors. Investment grade spreads moved 9 basis points wider to +120, bringing their month to date widening to 16 basis points. High yield spreads widened 20 basis points to +364, extending February’s move to 40 basis points. Despite this incremental drift higher, valuations remain relatively tight in a historical context: investment grade spreads reached +81 at their cycle lows, while high yield reached +293. For additional perspective, spreads briefly peaked at +172 in investment grade and +503⁸ in high yield during the market dislocation surrounding President Trump’s “Liberation Day” announcement. In the tax-exempt market, municipal yields drifted lower in tandem with Treasuries, with yields declining 2-4 basis points across the curve.

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Selected Indices⁹

Sources:

1. Bloomberg: As of March 1, 2026 ↩︎
2. Bloomberg: As of March 1, 2026 ↩︎
3. Bureau of Labor Statistic: As of March 1, 2026 ↩︎
4. Bureau of Labor Statistics: As of February 27, 2026 ↩︎
5. Bureau of Economic Analysis: As of February 20, 2026 ↩︎
6. Federal Reserve Bank of Atlanta: As of March 1, 2026 ↩︎
7. Bloomberg: As of March 1, 2026 ↩︎
8. Bloomberg: As of March 1, 2026 ↩︎
9. Source: Bloomberg. As of March 1, 2026 ↩︎

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